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Saturday, August 15, 2009

Commodity Branding

ARUN SALURU, ABHISHEK BAKSHI, MOHIT KHEMKA | IIM SHILLONGMarketing Guru’s Philip Kotler and Kevin Keller had said that commodity as a product is so basic that it cannot be physically differentiated in the minds of the consumer. Some people are of the opinion that commodity is sold on the basis of price and not on any differentiating factor. But in his classic article titled, ‘Marketing success through differentiation – of anything’, Theodore Levitt begins by saying, “There is no such thing as a commodity. All goods and services are differentiable”.

The biggest pitfall in the branded commodities market is the sense of lethargy prevailing in the commodity industry itself. The corporate culture in these businesses makes the blunder of emphasising only on operations, scale and sales; giving second treatment to marketing. They put less stress on segmentation, positioning, delivery speeds and customer service and in turn lose out on making larger margins on their products by creating consumer demand for their specific products.

On the other hand, we are strongly of the opinion that marketing information would save the company from price wars, margin cuts or over delivery of value. Analysis of branding of commodities consumed at retail level (B2C) shows that manufacturers must effectively differentiate their product offering vis-à-vis competitors as it moves the buying decision away from the price factor and therefore generates long-term profitability and sustainable advantage in a crowded marketplace.

We think that every commodity can be branded if the value proposition fulfils the needs of the target segment. Essential commodities like water, milk, vegetables, food grains, salt, sugar and commodities like gold, all have been branded. Tanishq's 24 carat gold is one of example how even gold can be branded. The huge opportunity has drawn several companies, both domestic and multinational, in the branded commodities arena. But the most difficult task for the marketers is to identify these differentiations and thus create value for the consumers that too results in increased bottom-line.

We will explain the branding of commodities by taking leafs from the industry.

WaterWater has always been available in abundance on earth and also been considered as a vital organ of humanity. It has occupied a pure and a dignified status both in terms of religion and spirituality, in the various civilizations across the world and more so in case of India. Pure and safe drinking water has always been a necessity. Earlier wells and natural sources were used to get drinking water and were stored in earthen pitchers. In the tradition of welcoming the guests and visitors to households, water would be the first thing that was offered. People had the mindset that water is a commodity which nobody would be willing to pay for.

But the tradition of serving and consuming drinking water has changed significantly almost a decade and a half ago, with the introduction of packaged drinking water. It was the institutional consumers like hotels, offices and commercial set-ups that were the first consumers of packaged drinking water. They were the harbingers of change. Then with passage of time, and change in the life style, general public also started embracing safe and convenient packaged drinking water. The need to travel frequently and for longer distances and staying healthy during travel, led travellers to purchase packaged drinking

In the Natural water category, the water is packaged from the source and no processing is done except for disinfection. The ordinary bottled water is chemically processed. Packaged drinking water is derived from any source and has to be treated and disinfected, a process that could involve filtration, UV/ Ozone treatment and reverse osmosis, before it is fit for human consumption.

Himalayan of the TATA’s is the market leader in the Natural water category. In fact it is the only Indian brand of natural bottled water to be internationally accepted in the markets across Europe and US. The USP of Himalayan is the distinctive taste derived from its origin and also commands a premium in the market for this value proposition. It is positioned at the high end of the value segment. Evian is another major international brand of mineral water by Danone water. More over the economic upliftment hasled the society to increasingly value their health and well being. This created demand for premium products like natural water. The inability of Municipal Corporations to provide safe potable drinking water due to tremendous pressure on infrastructure, and adding to it the exorbitant cost of medical treatment and cost of lost time due to illness, has led families to adopt processed drinking water. ‘Safe’ and ‘Pure’ were the two words, on which packaged drinking water marketers led their charge on the tap water, which was available almost free. Earlier even during travel, Indian families used to carry water from home in dispensers, but now as lifestyle has become fast and happening, ‘convenience’ is regarded in high value. Indians have altered their buying preferences on the basis of taste, processing technology, health factors and convenience. It was the time when branding of a commodity – water, was complete and also the moment when companies both national and international lined up to woo them and offer a bottle of water to quench the thirst.

The bottled water market is divided into two categories1) Natural Water2) Ordinary/Packaged bottled water.

The leader in the Indian bottled water market is Bisleri with a market share of 16 % followed by Kinley and Aqua Fina with a share of 14%, and the rest of the market is dominated by regional and unorganized products. Bisleri has built its market share on the proposition of freshness, purity, safety and easy availability at affordable price. IRCTC has packaged drinking water with the brand name ‘Rail Neer’ to meet the need of railway passengers. The introduction of cheap water pouches by Rail Neer, is another innovation to bring down the cost for the lower value segment. Companies are also involved in innovative packaging like PET bottles, easy to hold bottles and different colored bottles (pink in case of Himalayan), in a bid to create differentiation. Provision of water dispenser is another differentiating factor being brought by some of the industry players. Some brands project the process of treatment like ozonisation, UV treatment, reverse osmosis etc. as their unique propositions. (Manikchand’s Oxyrich). Ever since bottled water has become a prestige product in India, companies are offering retail margins of 20% to 40% against 8% to 10% on soft drinks and are enticing retailers for more of their refrigerator space.

The single factor deciding the viability of a water brand in the market is the transportation cost. According to a standing committee on railways report (2006-07), in the bottled water segment, raw material charges constitute about 45% of the total cost, while transportation, operation and other overhead makes around 45% of the sales cost.

There are just about eleven natural mineral water licence holders, while there are several hundred packaged drinking water licences approved by BIS. With about 70% of packaged water market still fragmented, the industry provides a good consolidation bid opportunities for the major players. The industry has also paved the way for new product segments such as flavoured, vitamin based and herbal waters.

The organised packaged drinking water is facing severe competition from local packaged drinking water producers, ‘Zero B’ water dispensers of Ion Exchange Limited and Aqua guard and other water treating dispensers, and also from carbonated beverages and fruit juices. The industry is also facing erosion in sales due to rampant prevalence of spurious products.

So the need of the hour is to secure the brand value and continuously move up the value chain to keep the consumer delighted with its unique value proposition.

SteelIn the aftermath of the de licensing process took place in 1991, the steel industry has undergone a dramatic change. There was a metamorphosis, from sellers’ market to purely buyers’ market. From customers’ side, there is a more open outlook towards new ideas, technologies and desire for international quality and these new practices have contributed immensely to the producer’s of steel. The focus of almost all of these producers has moved from steel production to steel branding and also to steel servicing. Companies are promoting their product as a brand using synergic brand name and tag line. SAILMA, SAIL TMT, Tata TISCON, Tata Shakti, Tata Steelium, Vizag TMT, Ispat, Sujana TMT, Ramswarup, Balaji Shakti, Jindal pipes, Rathi Sariya and corrugated sheets to name a few. In 2006-2007 Tata Tiscon became the largest branded Rebar in India. Today the emphasis is on product- specific slogan and advertisements.

Branding and servicing of steel needs a clear-cut assessment of the steel market dynamics. Steel producers cater to two segments of customers; B2B and B2C. B2B customers are more knowledgeable and rational in approach and make better informed purchase decision since they have wide exposure to sources of information. They stress on the technical aspects of the products before making the purchase. Industries like automobiles, white-goods makers, real estate/infrastructures development companies, engineering goods producers, rolling stock manufactures, ship manufacturing units etc. form the major B2B segment. B2C customers on the other hand are more emotional and less rational in their decision making approach, they buy the product because of the manufacture's goodwill and reputation, brand name and reliability it promises and hence making the brand value significant in the final purchase.

Customers have started moving from low to high expectations, from ignorance to full knowledge, from local to global access, from a platform of little or no option to multiple choices, from being submissive to dominating. They have grown more sophisticated, demand global standard of technical and functional quality, tailor-made product, fast delivery, quick response to complaints, reasonable price, payment terms and conditions based on supply milestones achieved, complete satisfaction of their techno-economic requirements etc. Today, before planning of order for special grade of steel, they visit the plant premises of producers to assess their R&D, quality control and testing capabilities. Yesterday’s differential offerings have become today’s essential requirements.

In the changed scenario, steel marketing is defined as the process of identifying and selecting prospects, customers who can be turned sooner or later into a profitable accounts, understanding their changing techno-economic expectations i.e. Customer Value Dimensions (CVDs), suggesting the required product (grade, technical specification), pricing them based on market administered pricing technique (MAPT), making them available at convenient places in required quantity and on time, frequent communication, initiating sales action (on-line and off-line), rendering services with pace, proper order execution and people backed by physical infrastructure to support repeat orders and establish a competitive edge.

To succeed in this marketing warfare, it is essential for steel producers to come out with differentiated offerings. This would require formulating customized 8Ps of the steel marketing mix for various segments. Focused steel marketing would mean harmonizing all elements of the 8Ps of marketing-mix — product, price, place, promotion, process, pace, people and physical evidence to their advantage for mass customization. While it is necessary to offer differentiated steel products and adherence to technical CVDs, it is also necessary to adhere to functional CVDs including packaging, guarantee and warranty and customized services. The distribution strategy should ensure faster delivery of goods to customers. Thus, while direct distribution to be continued, introduction of dealers/stockists in the rural areas and smaller towns should also be expedited. Already companies like Tata Steel are channelizing some of their products through steel service centers (SSC) and conversion agents (CA) which are acting as a linkage between the steel producers and the customer (for example, Tata Ryerson). SSCs and CAs are being considered as an extended arm of steel producers and a critical element of steel supply chain.

In the ‘buyers’ market’, marketing of steel products will not be an easy ball-game. Huge competition is expected even among the integrated steel producers in India. This necessitates proper branding and servicing of steel through well designed supply chain management so as to deliver steel products to the customers with least cost. There is a fundamental shift from one grade / tolerance/size fits all to market of one. There is more room to create brands, with specific benefits for specific market segment, for which customers will be prepared to pay different premium price. Developing new brand and consistently nurturing the existing one and offering customized product will benefit the steel producers in terms of gains either as price premium, customer preference, customer loyalty or market share. The greater the number of brands in the market, the greater will be the degree of customization and better it will be for the industry as well for the customer. Moreover technology is transforming customer choices and techno-economic requirement which in turn, is transforming the market. What Indian steel producers need today more than anything else is a total break from old mindsets. Instead of being held hostage by their past styles, they need to think and act afresh.

EGG : “Eggs”quisite Branding!Any commodity which has to be converted to a ‘Brand’ has to be positioned differently from the existing products. There has to be some kind of product innovations or differentiation in order to prompt the customer to buy a branded commodity in place of a low-priced, unbranded one. In case of eggs, the differentiation is generally achieved by means of attractive packaging and design. While good packaging can be a good starting point to make the packed box of eggs recognizable in the market place, there should be other differentiating factors that do justice to the price premium of almost 100% that branded eggs command. Innovations at many levels are responsible for successful branding of eggs, right from Poultry scientists to Branding experts to Package Designers.

Branded eggs’ manufacturers have positioned their product in the market with a touch of innovation in terms of additional health advantage. They are being marketed as eggs which have higher nutritional value and added health benefits as compared to regular eggs. The consciousness of consumers for supplementary health advantages from everyday-use products or commodities is continuously on the rise. This changing trend has resulted in development of products like Sugar for diabetic patients, Diet Coke etc. To enhance the health benefits of eggs, the hens are fed on a special diet that enhances the quality of the egg. The diet comprises of fish oils and grains. The resulting egg, though looks and tastes just like the regular egg, possesses the potential to reduce cholesterol levels in the body, decrease the risk of coronary heart diseases, decrease the risk of cancer, and also the risk of age related diseases. Even the shelf life of eggs is claimed to have improved because of its packaging. Moreover, the manufacturers are also providing a leaflet showing all the health benefits the consumer will enjoy after purchasing that particular box of eggs. All these value additions justify the additional price a consumer pays for a nicely packaged box of extra-nutritious eggs!

Brands like Diet Eggs, Mother Hen's Golden Egg, and Suguna can be seen in most Indian supermarkets like Food World, Vitan, Reliance Fresh & Nilgiris. Though most of the branded eggs purchased by a consumer is more of impulse purchase from a supermarket’s shelf, these value- adds do result in tremendous repetition. But in order to be sustainable, the producers have to continuously keep finding ways to differentiate their branded products from unbranded commodities in order to maintain sufficiently reliable price inelasticity. India produces more than 50,000 million eggs per year (Research by: Dr I. Satya Sundaram, 2009), but the per capita consumption of eggs is just about 40 eggs per person per year. Though India is one of the top-most egg producing nations in the world after China, the market for branded eggs in India is only 3% of the total eggs sold in the country, leaving behind a huge untapped market ready to be exploited. With branded egg industry growing at an astounding pace of around 20% per annum, the future of the industry seems to be exciting with an array of players flaunting there designer eggs . Most of the buyers of Branded eggs in India are major Hotels and other bulk buyers. Hence, though there is a considerably stable demand for branded eggs from the B2B market, the potential for growth in B2C is more appealing.

‘An egg a day keeps the doc away’ seems to be the mantra now, after knowing the health benefits that are promised by the makers of this “Egg” citing variant of a commodity!

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Launched in April 2009, Markathon is the monthly Marketing magazine released by the Marketing Club of IIM Shillong and was the brainchild of Asit Jain, Saurav Bagchi, Dilpreet Singh, Ritul Singh, Pranab Talukdar & Soumyasanta Roy. The current office bearers are Ashok A, Kamalpreet Saluja, Pallavi, Prateek Gaurav, Shashank Singh Tomar, Sushree Tripathy, Swikruti Panda and Vaibhav Annam. This is the first monthly B-School marketing magazine which is circulated in over 50 B-Schools in India and abroad and has a reader base of over 5000. Made available in a free-to-distribute electronic format, it includes articles which cover a plethora of marketing topics and also has an ad designing competition. Markathon aims to deconstruct marketing jargons to make the subject more accessible to students. Interviews of corporate and academic stalwarts is a regular feature. The issues are characterized by rich images, detailed styling and the cover pages are especially remarkable and lend identity to the whole issue.